Show Transcript
A new report from TD Economics is shining a light on Canada’s deteriorating worker productivity and the potential implications for the economy. James Orlando, Director and Senior Economist at TD, speaks with Greg Bonnell about the decline, the economic implications and what can be done to address the problem.
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[AUDIO LOGO]
* From bad to worse. That's how a new report from TD Economics is describing the state of Canada's productivity. The report also says if that the issue isn't addressed, our standard of living will be at risk. Here to tell us more about this is TD Director and Senior Economist James Orlando. James, welcome back to the program.
* Oh, thank you very much.
* All right. Pretty intriguing report. A lot here that we have to get through. Let's start off with saying Canadian productivity has a problem. How did we get here?
* Well, productivity in and of itself is how do you spend your time? Are you efficient with your time? Can we make you more efficient? And so when we think about what makes Canadian workers more efficient, do we give them the tools necessary? Do businesses invest enough? And the answer to that has been no, we haven't had enough investment. But even more than that, have we created the environment in Canada to incentivize businesses to invest? Do we have the right tax system to create incentives?
* Even our population strategy for the economy, having the government allowing so many non-permanent residents to come in to be able to take jobs that are in low-wage sectors, enables or incentivizes firms to hire low-wage employees rather than invest. So the incentives are all wrong when it comes to that. So the issue is that there's been a whole host of factors that have caused problems, whether it be regulation, taxes, immigration policy. All of this has contributed to the fact that we've had productivity go from decent productivity in Canada, probably the engine of our growth, to no productivity, which has made us have low economic growth in this country.
* Now we do have a picture we can show the audience to sort of illustrate the problems we're having with productivity in this country. And it's pretty stark when you take a look at it. I mean, here is the '80s, the '90s, into the aughts, and here we are now. That arrow jumping off and going down dramatically, it doesn't look good to me.
* It's not a positive chart. That's for sure. And it just speaks to what's happened since the pandemic where prior to the pandemic, we had decent growth. 1% to 1.6% productivity growth. That's pretty decent when we consider that population had been growing by 1% during that time, as well. But when you get no productivity growth, which is what this is showing, what this means is that we're not allowing our workers or enabling our workers to be more productive with their time.
* And for workers, that's bad for them, too, because if I can do more stuff with every hour I put in, I can demand higher wages and my quality of living can increase, right? And I think this is a countrywide thing, that our standard of living is not progressing because of exactly this chart here.
* Let's talk about some of the areas in the report that really stood out, for me, in particular, that we're getting worse at making stuff. Why is that?
* Yeah. And the way we're categorizing that is stuff being goods.
* Yeah.
* You know, physical goods. And we talk about things like manufacturing. And that really is what people think about productivity, right? You think about a manufacturing floor and you say, OK, you've got this many workers working on a line and they're producing these many goods, right? And if we got a new assembly line that has more robotics in there, yes, you don't need as many workers, but maybe those workers can do other stuff.
Or even think about other industries where you might have a customer service situation. And those workers might be able to, instead of-- for example, if I go to a takeout restaurant and I have to call in, someone has to answer all the phones rather than having an automated system for me to order more of my food. All of this stuff is productivity, but what we've noticed is, rather than in the service sector, the biggest weakness of productivity is in the goods. So it is that manufacturing, construction area which has gone into negative productivity. So we're actually getting worse at making stuff. So for every hour getting less output. And that is very bad news for those sectors.
* You mention construction. That's what really stood out to me as I was going through this report when it came out. The worst of the lot. I mean, we talk about how we need more housing supply. We need more infrastructure in this country. Construction takes us there. Well, what's going on?
* We need construction. We need it. We need to build more homes in this country. We know that housing has not kept up with the population, with the demand for housing. Yet at the same time, we've spent 40 years of productivity declining in the construction sector. And this is when we've been producing more and more homes. So with every new home, it's been more and more challenging to get more units out there. And this is even more of a problem because it's not like our population story is going to go in reverse.
* We still have a situation where demand is greater than supply and that's going to be persisting for a while. You think about things like regulation, building permits, even the size of firms. There are so many small firms in Canada. We're not having the scale and the ability to scale up housing production in a way such that we can make our workers more productive so we can actually do this.
* Another picture for the audience, too, in terms of hours worked. So what story is this telling us?
* Yeah, so what it's showing is that we're actually having more of our economic allocation towards construction. So it's becoming more and more important for our economy. We need that, right? Obviously. But at the same time, there's been less and less hours worked in manufacturing. Now, manufacturing, we always think of productivity manufacturing, but this goes to the point of the paper, which is construction is very important. It's becoming more important. And when we think of productivity, it's no longer just, how do we make workers on a factory floor more efficient?
* It's there's a lot of sectors we never thought about productivity before and it goes down to this exact issue, is that, can we build homes differently? We talk about these prefab homes. Maybe that's a solution. But we talk about investment, we talk about skills, we talk about all that is required to get regulations and taxes to a level such that incentivizes businesses to put money in to make people more efficient with their jobs. And that just hasn't happened in this sector. And it's going to be concerning because it's not like we're moving away from less construction in this country.
* We've only got about a minute left, so it's really unfair to ask me how we're going to fix all this in a minute, but if you can do that. [LAUGHS]
* Well, there's a whole host of different things we need to do. We talk about that whatever you do, don't do any more harm kind of thing. Every year we are getting new policies or new taxes in this country that are changing the landscape, making it less incentivizing for businesses to invest. We need to make corporate taxes more efficient. We need to simplify them. We need to make sure that when we bring in people in this country, skilled people, they're adding to the skill set of this country.
* Because we need to incentivize businesses, create new businesses, scale them up, not just on a Canada wide, not just on a provincial wide basis, but on a global scale. How do we get these businesses to thrive? And for existing businesses, how do we get them to be incentivized to put the dollars there? To be like, OK, I can hire someone and maybe this will be cheap.
* It might be a quicker fix, and that's what I've been doing for the last few decades, but can we incentivize them to put that money into new technology to make a longer term investment in that business to scale it up? Everything should be in the thought of, how do we scale things up? And I think investment dollars, simplifying regimes on taxes, simplifying regulatory stuff will go a long way to make that happen.
[AUDIO LOGO]
[MUSIC PLAYING]
* From bad to worse. That's how a new report from TD Economics is describing the state of Canada's productivity. The report also says if that the issue isn't addressed, our standard of living will be at risk. Here to tell us more about this is TD Director and Senior Economist James Orlando. James, welcome back to the program.
* Oh, thank you very much.
* All right. Pretty intriguing report. A lot here that we have to get through. Let's start off with saying Canadian productivity has a problem. How did we get here?
* Well, productivity in and of itself is how do you spend your time? Are you efficient with your time? Can we make you more efficient? And so when we think about what makes Canadian workers more efficient, do we give them the tools necessary? Do businesses invest enough? And the answer to that has been no, we haven't had enough investment. But even more than that, have we created the environment in Canada to incentivize businesses to invest? Do we have the right tax system to create incentives?
* Even our population strategy for the economy, having the government allowing so many non-permanent residents to come in to be able to take jobs that are in low-wage sectors, enables or incentivizes firms to hire low-wage employees rather than invest. So the incentives are all wrong when it comes to that. So the issue is that there's been a whole host of factors that have caused problems, whether it be regulation, taxes, immigration policy. All of this has contributed to the fact that we've had productivity go from decent productivity in Canada, probably the engine of our growth, to no productivity, which has made us have low economic growth in this country.
* Now we do have a picture we can show the audience to sort of illustrate the problems we're having with productivity in this country. And it's pretty stark when you take a look at it. I mean, here is the '80s, the '90s, into the aughts, and here we are now. That arrow jumping off and going down dramatically, it doesn't look good to me.
* It's not a positive chart. That's for sure. And it just speaks to what's happened since the pandemic where prior to the pandemic, we had decent growth. 1% to 1.6% productivity growth. That's pretty decent when we consider that population had been growing by 1% during that time, as well. But when you get no productivity growth, which is what this is showing, what this means is that we're not allowing our workers or enabling our workers to be more productive with their time.
* And for workers, that's bad for them, too, because if I can do more stuff with every hour I put in, I can demand higher wages and my quality of living can increase, right? And I think this is a countrywide thing, that our standard of living is not progressing because of exactly this chart here.
* Let's talk about some of the areas in the report that really stood out, for me, in particular, that we're getting worse at making stuff. Why is that?
* Yeah. And the way we're categorizing that is stuff being goods.
* Yeah.
* You know, physical goods. And we talk about things like manufacturing. And that really is what people think about productivity, right? You think about a manufacturing floor and you say, OK, you've got this many workers working on a line and they're producing these many goods, right? And if we got a new assembly line that has more robotics in there, yes, you don't need as many workers, but maybe those workers can do other stuff.
Or even think about other industries where you might have a customer service situation. And those workers might be able to, instead of-- for example, if I go to a takeout restaurant and I have to call in, someone has to answer all the phones rather than having an automated system for me to order more of my food. All of this stuff is productivity, but what we've noticed is, rather than in the service sector, the biggest weakness of productivity is in the goods. So it is that manufacturing, construction area which has gone into negative productivity. So we're actually getting worse at making stuff. So for every hour getting less output. And that is very bad news for those sectors.
* You mention construction. That's what really stood out to me as I was going through this report when it came out. The worst of the lot. I mean, we talk about how we need more housing supply. We need more infrastructure in this country. Construction takes us there. Well, what's going on?
* We need construction. We need it. We need to build more homes in this country. We know that housing has not kept up with the population, with the demand for housing. Yet at the same time, we've spent 40 years of productivity declining in the construction sector. And this is when we've been producing more and more homes. So with every new home, it's been more and more challenging to get more units out there. And this is even more of a problem because it's not like our population story is going to go in reverse.
* We still have a situation where demand is greater than supply and that's going to be persisting for a while. You think about things like regulation, building permits, even the size of firms. There are so many small firms in Canada. We're not having the scale and the ability to scale up housing production in a way such that we can make our workers more productive so we can actually do this.
* Another picture for the audience, too, in terms of hours worked. So what story is this telling us?
* Yeah, so what it's showing is that we're actually having more of our economic allocation towards construction. So it's becoming more and more important for our economy. We need that, right? Obviously. But at the same time, there's been less and less hours worked in manufacturing. Now, manufacturing, we always think of productivity manufacturing, but this goes to the point of the paper, which is construction is very important. It's becoming more important. And when we think of productivity, it's no longer just, how do we make workers on a factory floor more efficient?
* It's there's a lot of sectors we never thought about productivity before and it goes down to this exact issue, is that, can we build homes differently? We talk about these prefab homes. Maybe that's a solution. But we talk about investment, we talk about skills, we talk about all that is required to get regulations and taxes to a level such that incentivizes businesses to put money in to make people more efficient with their jobs. And that just hasn't happened in this sector. And it's going to be concerning because it's not like we're moving away from less construction in this country.
* We've only got about a minute left, so it's really unfair to ask me how we're going to fix all this in a minute, but if you can do that. [LAUGHS]
* Well, there's a whole host of different things we need to do. We talk about that whatever you do, don't do any more harm kind of thing. Every year we are getting new policies or new taxes in this country that are changing the landscape, making it less incentivizing for businesses to invest. We need to make corporate taxes more efficient. We need to simplify them. We need to make sure that when we bring in people in this country, skilled people, they're adding to the skill set of this country.
* Because we need to incentivize businesses, create new businesses, scale them up, not just on a Canada wide, not just on a provincial wide basis, but on a global scale. How do we get these businesses to thrive? And for existing businesses, how do we get them to be incentivized to put the dollars there? To be like, OK, I can hire someone and maybe this will be cheap.
* It might be a quicker fix, and that's what I've been doing for the last few decades, but can we incentivize them to put that money into new technology to make a longer term investment in that business to scale it up? Everything should be in the thought of, how do we scale things up? And I think investment dollars, simplifying regimes on taxes, simplifying regulatory stuff will go a long way to make that happen.
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[MUSIC PLAYING]
